Corporate interest in currency hedging is spurred by firmer greenback

14:31 19.07.2018

American multinational companies get down to reevaluating their currency hedging strategies following a leap in the evergreen buck for recent months because the impact of the stronger US currency starts influencing second-quarter corporate profits.

On Monday, a firmer greenback had Netflix Inc claimed as its first victim of the revenue season. Well, the American company that doesn’t hedge its profits with derivatives told that foreign exchange rates pushed its hopes on the 2018 operating margin to the lower end of the company’s target range.

In the second quarter the evergreen buck managed to soar more than 5% versus key trading partners' currencies, underpinned by soaring trade war tensions as well as a hawkish Fed stance.

The USD index that in the beginning of the second quarter had lost nearly 11% year-over-year, concluded the quarter almost intact on a year-over-year basis.

The greenback’s ascend has shown up as a surprise risk in the beginning of a firm American corporate earnings season. The matter is that foreign currency earnings of American multinational companies are worth less in US dollars when the evergreen buck is firmer.

Financial institutions reported that their inquiries from clients had recently soared.

The evergreen buck’s recent strength appears to be a steep departure from its last year’s weakening trend, when it underpinned large American companies and might have made managing currency risks less crucial.

Some market experts actually expect a soar in trade protectionism to spur the US currency in the near term that could mean more companies will probably cite the stronger greenback for future revenue weakness.

By the way, the key US financial institution has lifted interest rates twice already in 2018 and it’s believed to increase them at least two times by the end of 2018.